Sample Chapter

Lunch on a Silver Platter

It is no accident that Ken Lay's career in the energy business
began-and, most likely, ended-in the city of Houston, Texas.

Houston was the epicenter of that world, home to giants like Exxon,
Conoco, and Pennzoil. Spindletop, the legendary field that triggered the
first Texas oil boom, back in 1901, is just up the road. To the south
and east, sprawled over thousands of acres, lie refineries,
petrochemical plants, gas-processing facilities, and tank farms-the
grimy monstrosities that feed the nation's hunger for plastics,
fertilizer, heat, electricity, and gasoline.

For most of the twentieth century, Houston's economy rose and fell with
the price of crude. In the 1970s, when an Arab oil embargo was
strangling the rest of America, Houston boomed. By 1987, when lower
energy prices were pumping fresh life into the country, the city was
flat on its back.

Houston also perfectly reflected the culture of the energy business. It
was sprawling and rough, lusty and bold, wide open to opportunity and
worshipful of new money. A city built on a swamp, Houston was a place
where a man with a wildcatting spirit could transform himself virtually
overnight; a like-minded company could remake itself, too.

The romance and myth in the energy business, of course, had always been
about oil. It was crude that built empires, inspired legends, and
launched wars. It was oil that the Mideast sheiks used to hold America
hostage. It was oil that created the towering fortunes of Rockefellers
and Hunts.

But Ken Lay's destiny lay in a humbler hydrocarbon: natural gas.
Transparent, odorless, lighter than air, natural gas, composed mostly of
methane, lies trapped in underground pockets, often beside oil deposits.
America has long had vast reserves of gas, and it burns far more cleanly
than either coal or oil. Yet for the first half of the last century,
America had little use for the stuff. It was a mere by-product in the
quest for oil, priced so cheaply it wasn't worth laying new pipelines to
move it across the country. Instead, natural gas was usually just burned
off as waste or was pumped back into the ground to maintain pressure to
extract more oil.

By the 1950s, however, the perception of natural gas had begun to
change. Gas was never going to attain the mythic status of oil-not even
after Enron arrived on the scene-but it gradually became useful and even
important. A flurry of pipeline construction had linked gas supplies in
Texas and Louisiana with the rest of the country. Dozens of new
petrochemical plants-many along the gulf coast of Texas-relied on
natural gas as their basic fuel. By the time Richard Nixon took office
in 1969, gas heated a large percentage of the nation's homes and powered
thousands of industrial sites year-round. Still, except for the
occasional pipeline explosion, natural gas remained largely an
afterthought, literally beneath notice, crawling silently about the
country at ten miles per hour through a network of buried steel.

Back in those less complicated times, there were lots of industries that
Operated more or less by rote: the old banker's motto, for instance, was
"3-6-3": take money in at 3 percent, lend it out at 6 percent, and be on
the golf course by 3 P.M. But few industries were as downright sleepy as
the gas-pipeline business. Yes, there was the occasional pipeline
company that explored for gas, too; exploration has always been the most
romantic part of the energy business. But mostly the pipeliners bought
gas from oil giants and smaller independent exploration companies, then
moved it across the country through their networks of underground pipes.
Most of the gas went directly to industrial customers, while the rest
was sold to regional gas utilities, which piped it to smaller businesses
and consumers.

It was all very simple and straightforward-especially since every step
of The process was under government control. The federal government
regulated Interstate pipelines, dictating the price they paid for gas
and what they could charge their customers. (State agencies regulated
intrastate pipelines in much the same fashion.) However much executives
spent on operations, whether for moving gas or redecorating their
offices, Washington let them recover their costs and tack on a tidy
profit. "In the pipeline business, you'd have to make one or two
decisions a year," says one former Enron executive. "Everyone who
operated in it was pretty much brain dead."

It wasn't until the 1970s that things began to change-or at least to
change enough to attract the interest of a bright, shrewd, and intensely
ambitious young man like Ken Lay. Far from being afraid of the coming
changes, Lay wanted to push things along, to accelerate the pace of
change. In later years, colleagues joked about his penchant for taking
rapid action-any action-describing Lay's management style as
"Ready, fire, aim."

A Baptist preacher's son, Lay believed powerfully in the dogma of
deregulation. He sermonized about the virtues of unshackling the gas
industry, propelling it into a new, deregulated world, where the free
market set prices. In this new world, surely, there would be winners and
losers: those who had the skills to thrive in a deregulated universe and
those who didn't. From the start, he saw himself as one of the winners.
He could envision taking control of a lowly pipeline company and
transforming it into the first "gas major," a company with the power,
brains, resources, and global reach of the oil giants.

Lay usually expressed his preference for deregulation in ideological
terms; his training as an economist had taught him that free markets
simply worked better than markets controlled by the government, he liked
to say. But he also believed that deregulation would create
opportunities to make money-lots of money. And making money was terribly
important to Ken Lay.

In later years, when Enron was at the peak of its powers, Lay was viewed
as he'd always wanted the world to see him-as a Great Man. He was
acclaimed as a business sage, a man of transcendent ideas who had
harnessed change in an industry instinctively opposed to it. In the
public face he presented, Lay seemed to care deeply about bettering the
world. He spent much of his time on philanthropy: in Houston, he was the
go-to man for charitable works, raising and giving away millions. He
spoke often about corporate values. And he was openly religious.
"Everyone knows that I personally have a very strict code of personal
conduct that I live by," he once told an interviewer for a religious
magazine called The Door. "This code is based on Christian
values."

Lay was a hard man not to like. His deliberately modest midwestern
manner-Lay made a point of personally serving drinks to subordinates
along for the ride on Enron's flagship jet-built a deep reservoir of
goodwill among those who worked for him. A short, balding man with an
endearing resemblance to Elmer Fudd, he remembered names, listened
earnestly, and seemed to care about what you thought. He had a gift for
calming tempers and defusing conflict.

But this style, soothing though it may have been, was not necessarily
well suited to running a big corporation. Lay had the traits of a
politician: he cared deeply about appearances, he wanted people to like
him, and he avoided the sort of tough decisions that were certain to
make others mad. His top executives-people like Jeff Skilling-understood
this about him and viewed him with something akin to contempt. They knew
that as long as they steered clear of a few sacred cows, they could do
whatever they wanted and Lay would never say no. On the rare occasion
when circumstances forced his hand, he'd let someone else take the heat
or would throw money at a problem. For years, Lay seemed to float,
statesmanlike, above the fray, removed from the tough day-to-day
business of cracking heads in corporate America. Somehow, until Enron
fell, Ken Lay never seemed to get his hands dirty.

A man of humble origins, Lay also became addicted to the trappings of
corporate royalty. For years, he spent most of his time playing power
broker. He traded personal notes with presidents, pulled strings in
Washington, and hobnobbed with world leaders. Back in Houston, he was
known as someone whose ring any aspiring politician needed to kiss.
Indeed, there was talk he would someday run for mayor-if he didn't
accept a president's call to serve in the cabinet instead. Some of that,
unquestionably, came with the territory; some of it even benefited
Enron. But it came at a big cost: over time, he lost touch with his
company's business.

Though few people complained about it before Enron fell, Lay's behavior
also betrayed a powerful sense of personal entitlement. Long after his
annual compensation at Enron had climbed into the millions, Lay arranged
to take out large personal loans from the company. He gave Enron jobs
and contracts to his relatives. And Lay and his family used Enron's
fleet of corporate jets as if they owned them. On one occasion, a
secretary sought to arrange a flight for an executive on Enron business
only to be told that members of the Lay family had reserved three
of the company's planes.

At lunchtime, top Enron executives, who worked on the richly paneled
fiftieth floor of the company's headquarters tower in downtown Houston,
routinely dispatched their assistants to fetch lunch so they could eat
at their desks. Most ate their sandwiches on deli paper. Not Ken Lay.
When his meal arrived, his staff carefully unwrapped it, placed the food
on fine china, and served him lunch on a covered silver platter.

There was no fine china in Kenneth Lee Lay's early life. He grew up
dirt-poor. Indeed, the Enron chairman's history is a classic Horatio
Alger story. He was born in 1942 in Tyrone, Missouri, an agricultural
dot on the map in the Ozarks. Before Lay became a business celebrity,
the region's most famous former resident was Emmett Kelly, the circus
clown known as Weary Willie.

Lay portrays his childhood, spent largely in tiny farm towns with
outhouses and dirt roads, in Norman Rockwellesque terms. But the Lays
were always struggling-until he was 11 years old, Ken Lay had never
lived in a house with indoor plumbing-and at a young age, he set his
mind on finding his fortune.

His parents, Omer and Ruth Lay, had three children; he was the middle
child, after Bonnie and before Sharon. For a time, the Lays owned a feed
store. Then disaster wiped them out: the Lays' deliveryman crashed a
truck, slaughtering a load of chickens. Omer had to take to the road as
a traveling stove salesman; the family followed from town to town, until
they were finally forced to move in with in-laws on a farm in central
Missouri. Omer, a Baptist lay preacher who held a succession of day jobs
to feed the family, started selling farm equipment. Acutely conscious of
the family circumstances, young Ken always worked: running paper routes,
raising chickens, baling hay. "It's hard for me not to think Ken was an
adult when he was a child" his sister Sharon said years later. The
hardship honed Lay's ambition. He later spoke of spending hours on a
tractor, daydreaming about the world of commerce, "so different from the
world in which I was living."

Lay's parents never made it past high school, but college transformed
his life. The family eventually resettled in Columbia, Missouri, where
all three children attended the University of Missouri. Omer worked as
parts manager in a Buick dealership then as a security guard at the
university library while preaching at a small Baptist church. Ken
painted houses, earned scholarships, and took out loans to pay his way
through school.

Lay was a devoted and stellar student, serious beyond his years, with a
Natural intellectual bent. He'd entered college planning to become a
lawyer but became enraptured by the study of economics during an
introductory class taught by a popular professor named Pinkney Walker.
He discovered that theory and fresh ideas fascinated him. But his
passion always had a pragmatic side. He cared about politics and public
policy, how government could shape markets. "Ken was one of these 4.0
guys who had some street sense," says Phil Prather, a Missouri classmate
and lifelong friend. "Most 4.0 guys I know are a bunch of savants."

Although Lay stood out for his brains, he was never the stereotypical
egghead who spent every waking moment in the library. Though slight,
low-key, and quiet-he struggled for years to overcome a mild stammer-he
was popular as well. At Missouri he won election as president of Beta
Theta Pi, the university's largest and most successful fraternity.
(Among Lay's predecessors in the Missouri frat house: Wal-Mart founder
Sam Walton.) Lay became an inveterate collector of relationships. At
each major stop in his early life, he forged bonds that lasted for
decades. These weren't only personal acquaintances. Time and again, he
would tap his growing network: for a job, for a favor, or to surround
himself with those he trusted. This skill propelled his climb.

The first key relationship, in fact, was with Pinkney Walker. Walker was
drawn by Lay's brains and ambition and quickly became his mentor. "We
just hit it off with each other from the first," remembers Walker. "It
was always inevitable that he would be a man of wealth." After a
lifetime of pinching pennies, Lay was eager to start making money. But
after graduating Phi Beta Kappa in economics, he remained in school to
get his master's degree after Walker convinced him that he would be
better off in the long run with a master's on his risumi. Lay finished
school in 1965.

For the next six years, Lay paid his dues: first in Houston, at Humble
Oil (a forerunner to Exxon), where he worked as an economist and
speechwriter while taking night classes toward his Ph.D., then in the
navy, in which he enlisted in 1968, ahead of the Vietnam draft.
Originally intended to become a shipboard supply officer, perhaps in the
South China Sea, Lay was abruptly reassigned to the Pentagon. This
assignment introduced him to Washington. Lay later attributed such
critical turns in his life to divine intervention, but in this instance,
there was no miracle involved: Pinkney Walker had pulled some strings
for his protigi. Instead of putting in his tour of duty at sea, Lay
spent it conducting studies on the military-procurement process. The
work provided the basis for his doctoral thesis on how defense spending
affects the economy. At night he taught graduate students in economics
at George Washington University.

At each of these early stops, Lay received a taste of life at the top.
At Humble, he wrote speeches for CEO Mike Wright; at the Pentagon, he
recruited a high-level officer to provide support for his work as a
lowly ensign.